Building industry leaders have voiced their outrage towards the Reserve Bank’s recent cash rate decision, claiming that interest hikes will work against the state’s economic and housing targets.
Master Builders Association of NSW executive director Matthew Pollock was among the dissenting voices, arguiging rate rises may not have the effect intended.
According to Mr Pollock, the underlying inflation that prompted the rate rise was largely caused by increased costs and constraints in the construction sector, with interest rate hikes not being the remedy to this problem.
Construction industry leaders have voiced their frustrations about the RBA’s recent cash rate hike. Picture: NSW Government
“Cutting red tape, tackling labour shortages and finding solutions to finance and insurance challenges must be urgent priorities for government,” he said.
“Finance costs are already a big brake on new housing investment and the increase in rates will put the viability of multi-unit developments under additional pressure at a time when the business case for many is failing to stack up.”
Mr Pollock said Master Builders was calling for greater investment in skills and innovative finance solutions from the Minns Government in the next State Budget, in order to tackle the cost increases and “capacity challenges” that were reflected in the rate hike.
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Master Builders NSW’s Matthew Pollock says the government must focus on cutting red tape. Picture: Chris Kidd
Housing Industry of Australia chief economist Tim Reardon was also dismissive of the rate decision, stating that raising interest rates to fight housing-driven inflation was “like killing the patient to cure the fever”.
“Housing costs are the largest and most persistent contributor to inflation, yet the primary tool used to fight inflation, higher interest rates, directly restricts the supply of new homes,” he said.
“When inflation is driven by supply constraints, higher interest rates do not solve the problem, they actively intensify it.”
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HIA Chief Economist Tim Reardon said the RBA’s solution was like ‘killing the patient’. Picture: Tertius Pickard
Mr Reardon said higher rates would raise the cost of borrowing and reduce the number of new homes coming to market, which would keep inflation elevated for longer.
“At the same time, higher interest rates will slow business activity, create unemployment and worsen economic and social outcomes,” he said.
“This cost would weigh heavily on those least able to afford it.”
Mr Reardon said fixing housing-driven inflation did not require creating unemployment across the rest of the economy, but instead reducing the taxes embedded in new housing and accelerating its delivery.
“This approach tackles inflation at its source, rather than suppressing activity elsewhere in the economy,” he said.
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